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Post by wellesleyco on Jun 9, 2014 7:00:50 GMT
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james
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Post by james on Jun 24, 2014 21:46:13 GMT
No real need for a third ISA type. There's a general improvement in the ISA rules that can be made: letting current year money be partially transferred to another provider, instead of mandating all of it of a particular type. That doesn't only benefit investors in P2P, it benefits savers and investors generally. It keeps the "only two places have to check the limit" factor that makes the one of each type rule attractive to HMRC by letting providers do some checking against the annual allowance.
A P2P-specific ISA is a pretty abhorrent concept overall since that appears to envision investors forced to use only one P2P place with all of their new money investment ISA use in the year. Diversification is critical and that restriction is hardly a good service to investors.
The change to transfer rules tends to solve both the provider and investor issues. Providers only have to support their own P2P product plus transfers in and out. Investors may have to pay in to only one P2P place but the transfer out lets them move the excess money into a normal S&S ISA. Or from a normal S&S ISA into the P2P ISA. Or from cash ISA into wherever. This is also the sort of thing that is likely to be cheaper for investors vs using a normal platform for the P2P, with the cut it will inevitably want from their profits.
However, I'm not sure how much value the one of each type rule now provides to HMRC. Previously a provider could know the limit they had to check against with good reliability but now the limit is the whole allowance in cash ISA and in a S&S ISA so even one of each type allows uncaught doubling of the allowance until HMRC does its annual check. Providers do monthly reports already so it might just be time for HMRC to update its systems instead of restricting investors with a one of each type rule. That would be a welcome bit of simplification, moving just to an amount limit.
If we consider the other ISA changes this year, there's really more of a motive to switch to just one type of ISA, eliminating the cash/S&S distinction completely. As I understand it the tax charge on interest on uninvested money paid in S&S ISA is being removed, making them the same as a cash ISA in that respect. And with that goes the last major reason to have a distinct cash ISA wrapper. All can be done as just "ISA" with some places choosing to offer deposits and others a broader range. A nice additional bit of simplification.
So my overall thought: one type of ISA, not two or three, and give up on the providers doing more than checking against the whole annual limit for money paid into them.
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james
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Post by james on Jul 1, 2014 15:11:55 GMT
Some corrections/update based on the recent changes:
1. Cash in S&S ISAs is client money and gets only £50,000 FSCS protection unless the S&S ISA has a deposit account in addition to the usual for investment cash account. Cash ISAs are usually deposits and get £85,000 but it is possible for them to be client money with only £50,000 FSCS protection instead. The providers are supposed to make it obvious which applies or whether neither applies and there is no FSCS protection. So even though the interest is tax free there is likely to be a protection difference between cash and S&S ISAs.
2. The 5% test and five year remaining at time of purchase restrictions for investments in a S&S ISA have been removed.
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agent69
Member of DD Central
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Post by agent69 on Jul 6, 2014 8:41:51 GMT
Given the p*ss poor rates currently on offer for my cash ISA, am looking forward to the possibility of P2P being allowed.
Does anyone know if you will be allowed to transfer current P2P investments into the ISA, or will you have to sell them and then buy them back from within the ISA wrapper?
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Post by phoenix on Jul 6, 2014 12:02:58 GMT
The short answer is that nobody knows yet, but I'd guess that sort of thing will be down to the individual provider, not laid down in regulations.
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james
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Post by james on Jul 6, 2014 12:31:16 GMT
A move without sale and repurchase is currently prohibited by the ISA regulations except if it's shares from a save as you earn option scheme or share incentive plan, per Guidance Notes for ISA Managers 6.19. Transfer of loan notes is specifically prohibited in 6.20. It certainly would be convenient if this was permitted, even for one year only. |
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Post by phoenix on Jul 6, 2014 16:13:40 GMT
Just to clarify, my answer was based on the assumption we were talking about transferring from non-ISA to ISA with the same provider, rather than moving between providers.
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james
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Post by james on Jul 6, 2014 16:21:04 GMT
That makes no difference.
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Post by phoenix on Jul 6, 2014 17:30:49 GMT
I'll stop digging now.
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james
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Post by james on Jul 7, 2014 20:21:13 GMT
There is something that P2x vendors might be able to do: bed and ISA. Same approach as is already used to move shares into an ISA. One instruction that does the sell outside the ISA and the buy inside it.
I can see some catches because the bed and ISA shares approach uses a sale on the open market and a buy back on the open market. Try that on a lot of P2x platforms and bots will grab the loan before you can rebuy unless it is roughly instantaneous. That illustrates a valuation problem: what is the actual market value that the loan has when you put it into the ISA? You need that value to work out how much of your annual allowance is being used by the move. Is it above the capital currently owed? Given the demand on some P2x platforms the answer to that question would be yes for a lot of loans and also no for a lot.
Bondora currently has sell and buy capability and charges a fee as a percentage of the sale price and purchase price for buyer and seller, respectively. To minimise that cost what happens is that people sell at a ridiculously low price and buy at the same price at a quiet time when they hope that nobody will have time to notice the availability of the loan and buy it first. That's a valuation problem: the true value is not the 1% of capital that the loan is being sold and bought at and if that was the value used it would grossly understate the real value and inflate the amount that could be moved within the annual allowance.
A one step capital value transfer would avoid that problem while not being particularly bad on the market value issue.
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